RAJ SISODIA: Conscious Capitalism

In some quarters of the competitive business world, Raj Sisodia’s ideas are probably viewed as radical or, at best, severely limiting. Yet this award-winning author, professor and economic consultant is, in actuality, viewing the business world in the only way it can be viewed if we are to survive as a culture and as a planet. In his new book Conscious Capitalism: Liberating the Heroic Spirit of Business, co-authored with Whole Foods Market co-CEO John Mackey, Sisodia describes companies conducting themselves with a higher purpose, conscious leadership, and an eye to the impact of the company on customers, employees, the environment and society in general. An ever-growing number of companies and corporations are listening.

An Accidental Discovery

Sisodia came across the need for these vital changes quite by accident. “I’ve been a marketing professor for twenty-eight years now,” he told Organic Connections. “For a long time I was very frustrated with the marketing profession, as it did not work very well. It was neither efficient nor effective, and in most cases didn’t create value for customers, companies or even society.

“Because I was unhappy with marketing, in 2004 I started a project called ‘In Search of Marketing Excellence,’ which was intended to find companies that did marketing right—not spending too much money and yet having outstanding results. Most companies spend a lot of money, yet have customer loyalty and trust levels that are very low; often the more they spend, the worse it gets. We wanted to identify companies where customers not only liked them but loved and trusted them, without the companies having spent a lot of money on marketing in getting there.

“We actually found a bunch of companies that had those characteristics. But in addition to customers with high levels of trust, we also found that the employees were equally loyal and trusting, as well as their suppliers. Their communities embraced them too. For these companies it was about all of their stakeholders.

“The project really ended up not being about marketing at all. There was a bigger story—a different way of thinking about business. These companies weren’t just there to make money. They had different kinds of leaders who were about service and about a purpose and were not driven by power or personal gain.

“We uncovered a larger story about business, and then capitalism itself. We ultimately examined twenty-eight companies, and this project became my book Firms of Endearment: How World-Class Companies Profit from Passion and Purpose, which came out in 2007.” Sisodia has been working in this new field ever since.

The Lessons of Adam Smith

The economic market model of today was actually set in place back in 1776, with the publication of a work called An Inquiry into the Nature and Causes of the Wealth of Nations. The book’s author, Scotsman Adam Smith, is today viewed as the father of modern economics—and Sisodia sees one vital element missing from his philosophy.

“Adam Smith’s core message was really that centralized planning doesn’t work,” Sisodia pointed out. “You can’t have government bureaucrats figuring out who should make what and how much and what to price it at. He said that individuals make those decisions based on their own perceived self-interest; but that is far superior to having somebody sitting somewhere trying to decide all of that, because it essentially cannot be done.

“However, what did not happen was the other side of our human persona, which is the need to care; it is equally as powerful as the drive for self-interest. When it came to establishing the foundations of capitalism, people ignored this dimension, assuming that this is something you do outside of the context of work, that you fulfill your need to care through your family and through your community, and that business can only be about self-interest.

“That’s like going into the world of business with half of your brain or persona shut off, the more human half. I think we should have integrated those two dimensions—the human need to care with the human drive for self-interest—into the same activity of business. It would have created a foundation for capitalism that was much richer than what we ended up with.”

Not Just for Shareholders

In more modern times, Nobel Prize–winning economist Milton Friedman stressed that a company’s primary responsibility was to its shareholders—a philosophy that corporations seemed to take as gospel. Sisodia also sees this viewpoint, of necessity, as having to greatly broaden.

“That’s a very narrow perspective,” Sisodia said. “It separates all of the human actors into two categories: some who are a means and others who are an end. If you think about the people who get connected to a business, in a way all of them are investors in it. Employees invest a good chunk of their lives, health and capacities; customers invest their trust; suppliers entrust their success to it. With this idea that investors are the end, you then start to think it’s okay to squeeze others in order to benefit one. That’s fine as long as your view of a business is that it’s a machine and this money coming out here is the output for the owners.

“But a business is in fact like a complex living adaptive system. Any part of it that is unhealthy can bring down the whole system; much as if one part of your body gets an infection, the whole body can die. When you start to think about business that way, you recognize the inherent interdependence and interconnection of stakeholders; and in the long run—and it’s always about the long run—investors cannot profit unless customers are truly happy and satisfied. And customers cannot be truly happy and satisfied unless employees are fulfilled and have a sense of meaning in what they’re doing. And you cannot do any of that unless you have high-quality inputs, which is where the suppliers come in.

“Taking a broader viewpoint, no business can flourish as an island of prosperity amidst a sea of despair; so the community’s health and well-being is very much a part of that as well.

“Recognizing all of this is, I think, one of the big mental shifts that has to happen. Whole Foods Market has what they call a ‘declaration of interdependence’ on their website, and that’s how they think of this—it’s all about interdependence with one another.”

The Worthwhile Purpose

“A worthwhile purpose is like a North Star or a magnet,” Sisodia explained. “You can think of it as something that aligns everybody’s energies in the same direction. In a company that does not have a purpose, all of the stakeholders—the customers, the employees—start to view each other as competitors trying to get their share of the pie.

“But when you have a shared purpose, that’s what drives your decision making—when you, your customers, your suppliers and your investors all believe in why the business exists. In the case of Whole Foods Market, it is about helping people improve the quality and the longevity of their lives through better education, nutrition and healthier lifestyles. If everybody believes in that, it then becomes the driver and it becomes a source of energy and inspiration.”

Fostering Creative Energy

Sisodia also sees such a purpose fostering creativity among the employees. “Ultimately I think that purpose really is a function of how much energy one is able to elicit—and by that I mean creative human energy, not just the physical energy, the physical force. The differentiator across companies is ultimately how much created human energy can you release and then harness. Companies that have a deeper, richer purpose are able to tap into those sources of energy that other companies essentially don’t have access to.

“In the US over the last ten years, the average level of employee engagement has fluctuated between 26 and 30 percent according to Gallup’s research. That means that anywhere from 70 to 75 percent of us are simply not engaged in our work; and in fact about 20 percent are hostile to their work. That’s the average company out there being run from a profit-maximizing standpoint.

“The kinds of companies that have a sense of higher purpose have these wonderful, caring collaborative cultures. In these companies you find 90 to 95 percent of people are passionate about what they’re doing, and that makes an enormous difference in the company’s performance and ultimately financial performance.”

Quality of Leaders

Since a company is run from the top down, leadership quality is also vital to Conscious Capitalism.

“In leadership we’ve gone through an interesting journey over time,” Sisodia continued. “If you look at the kinds of leaders who used to rise to the top, in the old days they were military-style leaders. It was command and control—the generals who could make decisions and then get everybody to fall in line behind them. That is not a surprise, because business as an institution was actually modeled on the military in terms of how it was organized. A lot of the terminology that we use—‘strategy,’ ‘tactics,’ and we talk about ‘capturing market share’—was battlefield terminology adopted by business.

“At first, these top executives were relatively modestly paid; it was really about power. That started to change sometime in the latter part of the twentieth century when we began to see a lot more emphasis on shareholder wealth creation. We then started to have CEOs being paid not only high salaries but also large amounts of stock and stock options. We entered an era where the leaders were primarily those individuals who were most motivated by money. They were promised that if they were able to raise the stock price, they could make tens of millions, in some cases hundreds of millions, of dollars. In fact we have billionaires who were created purely as employees of large companies, like Michael Eisner and Jack Welch.

“What we’re finding now is that neither of those approaches works very well. They don’t serve to inspire people, they don’t release the energies of the people who come to work for the company, and they don’t create a lot of value for customers because that is not their focus; their focus is on the bottom line.

“The world has changed dramatically in the last twenty or thirty years. People are looking for meaning and purpose. People are more educated and infinitely better informed because of the World Wide Web, and infinitely more connected because of telecommunications and social media. Those kinds of leaders simply don’t cut it anymore. The leaders we have today are driven by purpose, people and service. In a shorthand way we’ve gone from military leaders (driven by power) to mercenary leaders (driven by personal enrichment) to missionary leaders (driven by purpose). And we’re now finding that those are the leaders who are truly effective.”

Beyond Price and Convenience

It’s not only companies that must see to these changes; they must be dictated from the customer level as well.

“Customers today should actually look at a broader set of factors than just price and convenience,” said Sisodia. “They should look for quality and the other things that the company stands for. I think that’s already happening to a degree. There’s more emphasis on educating consumers, and a lot of these companies now are finding that not only are their customers there to be sold products to, but they’re interested in learning and willing to learn.

“Two companies in particular, The Container Store and Panera Bread, are realizing that their customers are quite keen to understand what these companies are like as places to work. Until recently The Container Store never said anything to its clientele about the fact that they’re one of the best businesses to work for in America—they were number one on that list two or three times in the last ten years. Now they’re discovering that people really feel good when they find that out.

“With rising consciousness, we’re going to see more and more customers taking this approach, and of course there are lots of technologies now that will enable that to happen much more readily. We’ll be able to scan the barcode of any product that we are considering and find out a lot about it in terms of how it is sourced and how it’s produced.”

Change Must Come

“Today what we talk about as Conscious Capitalism and conscious business is really the exception,” Sisodia concluded. “The norm is business done with the view to maximize profits for shareholders. That is not even questioned. It is gospel in business school and gospel in many companies, especially publicly traded companies. We’re seen as a sort of alternative approach.

“We want to get to a point where the default becomes the good option, where this becomes the norm, where people say, ‘Well, of course business has to start with purpose.’ I taught business for twenty-five years and never used the word purpose, because the purpose was given to us: it’s to maximize profit; okay, move on. Now we are saying, ‘That’s not enough.’ Profit is the outcome of doing a business well; profit can never be the purpose. If it does become the purpose, that business is headed downhill in a hurry.

“Right now we have a very toxic narrative about business and capitalism that is based upon greed, exploitation and selfishness. It is about enriching the few at the expense of the many.

“The real narrative about business is that business, when it’s done right, is fundamentally good. It’s based in value creation. It’s fundamentally ethical because it’s based on voluntary exchange, and it is noble because it elevates our existence above the level of subsistence where we can explore what it means to be human. It’s heroic because it lifts people out of poverty; it enables life to actually flourish on this planet.

“It should be this way so that the most idealistic of our young people would not automatically shun the world of business, saying, ‘If I am idealistic I can’t have anything to do with business.’ They would recognize that business actually is the way for effecting change in society on a broader scale, in a more sustainable way than working strictly for profits.”